Amazon FBA, also known as Fulfillment by Amazon, is a fulfillment and distribution network that allows independent business owners to utilize Amazon’s assets to sell their products. This includes using their fulfillment centers for storage and their delivery vehicles for shipping. Amazon even offers to pack every shipment and provide customer service for all orders for any company using FBA.
Obviously, these are desirable services for any business and using a well-known name like Amazon for these, including the use of amazon selling software, means that companies will benefit from their economies of scale and high levels of service. But is selling on Amazon FBA worth it?
There are many factors to consider when utilizing Fulfillment by Amazon. Here are a few:
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1. Lighten your Workload
Using Amazon FBA allows companies to focus on their core operations while Amazon workers take care of shipping, packing, lifting, and all the other hard work that comes with distribution. Amazon employees also take over any customer service issues relating to the product and any shipping inquiries. This lightens the workload for your company, allowing your workers to design, create, and manufacture new products that may become big sellers in the future.
2. Increased Sales
For many organizations, Amazon FBA can lead to improved sales numbers and a wider customer base. Because Amazon is so well known, having your product on their site can give you exposure that you may not have been able to get previously. Many Amazon customers, especially those with Prime accounts, prefer to buy off of Amazon because of its superior customer service and guaranteed fast delivery options. These Amazon services could greatly help visibility for your product and in turn increase your sales numbers.
Read more on finding products to sell on Amazon
3. Multi-Channel Fulfillment
Amazon FBA allows you to fulfill your orders from multiple channels, making your distribution and shipping processes even more streamlined. You can manage your inventory, storing more in regions where your product is more popular and allowing for faster delivery times and lower storage costs thanks to higher turnover.
Amazon takes care of the shipping and can take over inventory placement if you desire. This can help with seasonable items, allowing you to manage spikes in demand without using additional resources or being subject to higher costs.
Read more on the FBA business model
4. Reverse Logistics
Because Amazon handles the customer on your products, you benefit from not having to deal with returns and disputes, which can eat up valuable employee hours. Amazon will stay on top of all of your returns, providing the reverse logistics, shipping, packing, delivery, and re-stocking. This is a part of business that many independent merchants don’t take into consideration. A single return or complaint from an angry customer can take hours to settle and may hurt your reputation as a seller. Amazon’s professional customer service team can take over these tasks and allow you to focus on the job at hand instead of spending a whole day dealing with a small problem that can be easily fixed.
5. Prime and Free Shipping
When you use Amazon FBA, your products become eligible for Amazon Prime free two-day shipping as well as standard free shipping on products over $25. Customers are more likely to view products that have the Prime tag or at least offer free shipping with a certain purchase amount.
Your products will benefit from more views which should in turn translate to more purchases. You certainly will have the advantage over a similarly priced competitor product that does not offer Prime benefits or free shipping.
6. No Website Required
If you are an independent merchant who simply wants to sell your product with minimal hassle, Amazon FBA can make life a lot easier for you. You won’t have to spend time learning to create a website or pay for expensive web developers. You can let Amazon take the reins and do the selling for you.
There is no need to set up your own online store, as many people prefer to buy through Amazon thanks to their customer service and superior shipping options. Keeping your business operations minimal helps you to lower your overhead costs and reduce busy work associated with running a website and an online store.
1. Storage Costs
Amazon, of course, does not offer warehouse storage for free. You will have to pay based on the amount of space you are using and the length of time your product sits in the warehouse. If your product is suffering from low sales numbers, it will likely sit in the Amazon warehouse for longer periods of time, incurring higher costs that may displace any profit that could be made from sales.
Anything over 6 or 12 months old will be charged an additional long-term storage fee, further your cost burden. Depending on your situation, you may be forced to sell off your product at a reduced price just to avoid these fees.
2. Taxes and Accounting
Many sellers have found it difficult to reconcile Amazon FBA fees with either QuickBooks Online or Xero Accounting. Amazon does not have a direct connection, and some sellers have resorted to manually recording all fees on spreadsheets, spending hours a day. Fortunately, businesses like taxomate and others automatically transfer your Amazon fees to your QuickBooks or Xero account, making the entire process easy.
3. Minimal Access
Amazon operates with highly secured warehouses, and merchants cannot simply walkthrough to take a look at their inventory. If you are experiencing problems with shipping or packaging, Amazon will have to ship your product back to you for review, or you will have to go through complicated communication networks to review your product through an Amazon employee. This is not ideal for merchants who utilize complicated packaging or need to have constant oversight of their materials.
4. You Must Play by Amazon’s Rules
Amazon has strict requirements about packaging, product preparation, and safety. There are also products that are restricted completely, so you will have to perform your due diligence in making sure that your product is acceptable and packed correctly to sell with Amazon FBA. If you fail to follow the rules, whether intentionally or unintentionally, you risk being blacklisted by Amazon and banned from the FBA program indefinitely. Products may even be refused or destroy.
5. Your Reputation is at Stake
While Amazon generally receives positive reviews from its customers, it still makes mistakes on a daily basis. If your product is shipped in error, or another one is shipped in its place, it will be your company that receives flak from the customer.
Negative reviews will affect you far more than they affect Amazon. For smaller merchants, this can be a death sentence. A few mistakes are not of heavy consequence to an Amazon fulfillment center, but it can greatly harm a small company who is relying on FBA to keep them afloat.
So, Is Amazon FBA Worth It?
There is no simple answer to this question. Determining the value of Amazon FBA is based on a variety of factors and the needs of every individual merchant. Sure, you can leverage Amazon’s international presence and seemingly unlimited funds, but you also have to play by their rules.
You save yourself a lot of time by not dealing with the hassles of logistics and warehousing, but you also pay a pretty hefty fee for that service. If it is worth it to you to pay these fees, then Amazon FBA may be of use to you, but if you already have a streamlined shipping model, it could be a waste of money.
For the most part, Amazon FBA’s value depends on what and how much you sell. If your items are small, light, and take up very little space, your storage and fulfillment fees may be minimal, making it worth it for you to utilize the warehousing services that Amazon provides. This is especially true if you can sell your small items for a large profit. If your margin is sufficient, you can easily cover the cost of the fulfillment and storage, making it a lucrative option for you.
On the other hand, if you have large, bulky items that sell for low profit, you probably won’t benefit from FBA due to the high costs of storage. You may be better off working with local warehouses or even using your own storage space.
High volume sellers are more likely to benefit from Amazon FBA. If you are turning your inventory over quickly and consistently, you can justify using FBA because you are probably bringing in plenty of revenue to cover the storage and fulfillment costs. You’ll be avoiding long-term storage fees and enjoying the high-quality shipping and customer service that Amazon provides without having to handle the problems yourself.
Low volume shippers, however, should be wary of using Amazon FBA, as long-term storage and low revenues can mean that you aren’t making enough money to cover the costs associated with their services.
In order to determine if Amazon FBA is worth it for your company, you should perform a company analysis and really find out what your strengths and weaknesses are. Many companies can be very profitable by using Amazon FBA services, while others end up losing money and even closing shop because they weren’t careful enough when jumping in.
There’s no denying that Fulfillment by Amazon is an impressive, well-run service, but it is not beneficial for every company. Evaluate what your biggest needs are and decide from their whether or not you should utilize Amazon FBA.